Weekly Reports | May 09 2017
The low price environment for uranium is threatening financial insolvency for some producers.
By Greg Peel
Australian-listed Paladin Energy ((PDN)) has been struggling to survive financially in the environment of low uranium prices, which has ensured negative cash flow from the company’s operations for some time. Paladin has been close to defaulting on its debt obligations. Too close, according to CNNC Overseas Uranium Company.
Paladin previously sold a 25% stake in its flagship Langer Heinrich mine in Namibia to China’s CNNC in one of many acts intended to stave off insolvency. The sale came with an option to acquire the remaining 75% in the event of debt default. Paladin has since been forced to approach its creditors to ask for a refinancing deal. To CNNC, that's implied default.
CNNC moved to exercise its option. Paladin moved to take CNNC to court to fight the default claim. Paladin’s creditors have been supportive, but at the end of the day the company is in no financial position to weather a costly court case. Paladin has thus agreed to allow an independent valuation process to proceed, while at the same time not conceding to CNNC’s claim. CNNC’s option provides the right to buy Paladin’s debt and/or its equity at a -5% discount to fair market value.
The independent valuation will take 5-6 weeks. Paladin, which is currently in a trading halt, has vowed to keep stakeholders informed of progress.
Sellers of spot uranium continue to look to signs of increasing utility demand in term markets as reason not to lower spot prices to meet immediate demand, industry consultant TradeTech reports. Spot demand is also currently concentrated further into the future than “spot” would typically imply. Last week saw only four spot transactions concluded, totalling 500,000lbs U3O8 equivalent.
TradeTech’s weekly spot price indicator has slipped -US5c to US$22.45/lb.
While no transactions were reported in term markets last week, there is a growing number of utilities seeking contract offers and more still expected to enter the market shortly. Mind you, this has been the story of the uranium market for some time.
TradeTech’s term price indicators remain unchanged at US$27.00/lb (mid) and US$35/lb (long).
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